Fiduciaries for MedStar Health Inc.'s retirement plan breached ERISA regulations by failing to provide prudent investment options, according to a lawsuit filed in federal court.
The lawsuit, which was filed Monday and brought by former MedStar employee Elsa Reed against the hospital chain, the committee overseeing the plan and unspecified members on the committee, says that the defendants breached the Employee Retirement Income Security Act by failing to fully disclose the expenses and risk of the plan's investment options to participants and selected high-cost and poorly performing investments, instead of offering "more prudent alternative investments when such prudent investments were readily available," according to court documents filed in U.S. District Court in Maryland.
The MedStar plan had $1.8 billion in assets as of Dec. 31, 2018.
Among the breaches detailed, the lawsuit — Reed v. MedStar Health Inc. et al. — pointed to the plan offering a suite of target-date funds from Fidelity. The target-date suite offers "the riskier and more costly Freedom funds," referred to in the lawsuit as the active suite, and the "substantially less costly and less risky Freedom Index funds," referred to as the index suite.
"Defendants failed to compare the active and index suites and consider their respective merits and features," the lawsuit said. A simple weighing of the benefits of the two suites indicates that the index suite is a far superior option, and consequently the more appropriate choice for the plan. Had defendants carried out their responsibilities in a single-minded manner with an eye focused solely on the interests of the participants, they would have come to this conclusion and acted upon it. Instead, defendants failed to act in the sole interest of plan participants, and breached their fiduciary duty by imprudently selecting and retaining the active suite."
Fidelity and other firms listed in the lawsuit are not defendants.
The lawsuit also said that the plan charged participants excessive fees compared to plans similar in size. "Defendants' failure to ensure that the plan offered a lineup that charged participants reasonable and appropriate expenses represents a profound breach of fiduciary duty."
The class period is from July 2014 to the present.
A representative from MedStar could not immediately be reached for comment.